'Alongside adequate capital and organization, the third factor of the stability of the banking system is the quality of corporate governance' (Draghi, 2008).
'The ultimate responsibility for the safety and soundness of a financial institution resides with its board. As such, supervisors are more focused today on the quality of an institution's risk governance framework, risk management, risk culture and the role that the board plays in ensuring they are appropriate and effective' (FSB, 2014).
'Governance is the first line of defence of a bank's soundness, whereas capital is the last one' (Angeloni, 2017).
The Research program intends to investigate bank corporate governance and risk taking after the great financial crisis, both in a 'business as usual' as well as in a distressed context using both quantitative and qualitative approaches. The former aimed at providing policy makers with a set of early warning indicators of risk (of malpractice, measured by related party transactions published, improper directors, measured by former administrative sanctions, unfit directors measured by an index which captures the professional backgrounds of directors and is based on their CVs). This will entail building a hand-collected data-base of sanctions and related party transactions and board member characteristics to identify their effects on bank performance and distress.
The qualitative approaches will investigate the actual management of crisis situations by the in-depth analysis of a set of case histories. This will be an entirely novel and very significant contribution, as the new regulatory framework has been only recently introduced in the EU, and Italy will be the first State to intervene with a precautionary recapitalization under the BRRD.
Previous literature investigating corporate governance of listed companies in Italy includes Bianchi and Bianco, 2006, Minichilli, Brogi, Calabrò, 2016 and specifically on Italian listed banks Szego, De Vincenzo, Marano, 2008.
The Research program intends to investigate BCG, especially the challenges faced by decision-making bodies in risk taking after the GFC, both in a 'business as usual', ongoing concern as well as in distressed contexts by blending quantitative and qualitative approaches.
The former aimed at providing policy makers with a set of early warning indicators of risk (of malpractice, measured by related party transactions published, improper directors, measured by former administrative sanctions, unfit directors measured by an index which captures the professional backgrounds of directors and is based on their CVs). This will entail building a hand-collected data-base of sanctions and related party transactions and board member characteristics (described below), to identify their effects on bank performance and distress.
The qualitative approaches will investigate the actual management of crisis situations by the in-depth analysis of a set of case histories. This will be an entirely novel and very significant contribution, since the new regulatory framework deriving from the enstablishment of European Banking Union has been only recently realized, and Italy will be the first State to intervene with a precautionary recapitalization under the BRRD.
The qualitative approach is complementary because it sheds invaluable light on how current requirements for banks aimed at curbing excessive risk taking (RAF, ICAAP, ...) actually function, and also how recovery (recovery plan) and the return to stability can occur, thus addressing how law in the books i.e. the BRRD and EU Regulations on state aid actually turns into law in action and, more specifically in operating practice via the challenges which must met by the board members who have the responsibility of making decisions that must be compliant with both Italian law as well European legislation and directives.
Our team is made up of expert scholars with diverse and complementary backgrounds in management (Gatti), accounting (Bianchi), risk management (Leone), bank management and corporate governance (Brogi). All senior project members in addition to a robust academic background have had first hand experience of the challenges that arise when serving in the boards of distressed banks or intermediaries in liquidation (Bianchi, Brogi, Leone) or healthy banks (Brogi, Bianchi, Gatti). Also Andriolo and Tomasetti have extensive experience in the management of banks in distress or liquidation. They will base their contributions solely on publicly available information but can provide unparallel insight on the concrete problems posed by the current regulatory framework. Panetta and Pesic have the methological capabilities and the research experience to support the group.
The research program has potentially far-reaching implications for EU policy makers as well as
for practitioners who serve on the decision-making bodies that have the responsibility of safe and sound management of banks in normal times, of managing the distressed situation before the competent authorities finalise their decisions and defining and implementing the measures once they have been agreed upon.
It will advance BCG research by using a more 'holistic approach' as well as blending quantitative and qualitative approaches in order to avoid a partial insight to the phenomenon. It will strive to overcome the traditional siloed approach to the study of BCG by applying different methods and combining complementary approaches as in Haxhi and Van Ees (2017).
Various studies are convincingly showing how future research should abandon the easiness of investigating direct relationships, and proposing a more comprehensive and realistic approach to the study of BCG to better explain the real effects of corporate governance on firm's conduct and performance. These are increasingly calling for a more 'holistic approach' (Filatotchev and Boyd, 2009), in which the interdependencies of governance mechanisms are examined to understand their effectiveness (Aguilera, Desender, and Kabbach de Castro, 2012; Aguilera et al., 2008) and the assumptions in the agency theory approach are relaxed (Aguilera, Florakis and Kim, 2016). Notable studies have examined corporate governance mechanisms as 'complements' or 'substitutes' under different contingencies (Misangyi and Acharya, 2014) also taking advantage of recent methodological developments such as 'fuzzy sets' (Garcia-Castro, Aguilera and Arino, 2013).
Lastly, as pointed out by McNulty, Zattoni and Douglas (2013), despite the fact that qualitative studies still remain a small part of the literature on corporate governance (and are practically non-existent on BCG), there is much scope and need for more qualitative studies of significant rigor and relevance which explore the array of interactions and processes involved in corporate governance, as qualitative research often provides a basis for rethinking and challenging some of the dominant assumptions and meanings.